Spaghetti with Regulation Sauce

Restaurant owners work overtime to figure out Obamacare.

Kate Havard

December 31 - January 7, 2013, Vol. 18, No. 16

The owner of an Italian restaurant in Baltimore was going to talk to me about how his business was preparing for Obamacare, now that it is going to be the law of the land. But seeing the backlash faced by other businessmen who dared to suggest the law might have a less than salubrious impact on their businesses, he was having second thoughts.

On the day after the election, Papa John’s CEO John Schnatter got in trouble after speaking to a group of college students about small businesses. Asked whether he thought Papa John’s franchise owners might “cut people’s hours back. . . so they wouldn’t have to pay for health insurance,” Schnatter responded, “It’s common sense. That’s what I call lose-lose.”

An honest, almost innocuous answer. Yet the media portrayed Schnatter as the Pizza Grinch, scheming to snatch health care from the hands of his struggling employees just before Christmas.

Liberal groups announced boycotts, the company’s Facebook page comments were filled with ire, Jon Stewart called Schnatter and other CEOs critical of the health care law “a—holes” on TV.

A survey by YouGov seemed to indicate that Papa John’s “brand index” had dropped in the days following the fray. The media liked the idea that a businessman was being punished for saying that an expensive health care law was going to be expensive. “Restaurant Brands Suffering After Obamacare Rants,” read a headline in Slate. The Huffington Post piled on: “Papa John’s Obamacare Stance Costs Company Its Reputation.”

Schnatter stepped in to do damage control, writing an op-ed in which he assured readers that he intended to comply with the law and was indeed “cool with” people having health insurance.

Other businessmen who publicly speculated about the effects this law would have on their businesses, like The Cheesecake Factory CEO David Overton and Denny’s franchise owner John Metz, also came under fire.

Given all of this, I could understand why the man I wanted to interview was reluctant. “When I see these big powerful CEOs and they can’t even speak their mind on this, I think—what’s going to happen to me?” he said. Eventually, he agreed to speak anonymously.

This owner isn’t looking to flout the law. His restaurant has been offering health care insurance to full-time employees for decades, even as costs have risen. Now, he’s just starting to figure out what it will actually take to implement the law. The main issue is whether he’s a big business or a small one, and it’s not an easy question to answer.

His restaurant has no human resources department or government liaison. Instead, he and his sister have spent hours plugging old payroll numbers into computer spreadsheets, trying to figure out where they stand. “The first thing we’re doing is we’re still not sure whether we have 50 full-time equivalents,” he says. Over 50, and he’ll have to provide “affordable” coverage to all his full-time workers.

One common misconception about the health care law is that employers could avoid the mandate entirely by replacing their full-time employees with a greater number of part-time employees. That’s not going to work. They would still face a mandate, although it would only apply to their full-time employees.

There’s a reason the law refers not to full-time employees but full-time equivalents. Under Obamacare full-time employees are those who work more than 120 hours per month. Two part-time employees who each work 60 hours in a month would be counted as an additional full-time worker in determining whether the business falls over or under the 50-employee divide. So an employer must sum all the hours his part-timers work over the course of a month and divide that total by 120 to determine how many “full-time equivalent” employees he has. The only real way to avoid the mandate, then, is to keep your business small.

A further bind: Key definitions, such as what makes a plan “affordable,” have so far only been announced as “guidance,” not hard-and-fast rules.

Most businesses will have to scrutinize the hours their employees work, but once they do, they’ll at least know where they stand. For restaurants, however, with waiters working unpredictable, flexible hours, it will mean keeping constant track of how much work is being done in a given month, perhaps recalibrating the hours every month to make sure they are in compliance.

If you’re a business close to the 50 full-time equivalent mark, a heavy summer season or a holiday rush could put you over the top.

The mandate takes effect in 2014 but will be based on the prior 12 months. So starting in January 2013, owners will need to keep a close watch on their employees’ hours. At the end of the year, they’ll know their situation better.

“That’s not something you want to find out on December 31, 2013, and then have to implement it on January 1, 2014,” says Michelle Reinke, a health care expert at the National Restaurant Association.

She says that throughout the regulatory public comment process, the association has requested flexibility with certain regulations, and hopes things will become clearer once the “guidance” hardens into rules. “Restaurant owners need to educate themselves about how the law will impact their business and their employees,” she said. “But until all the rules are on the table, it’s hard to make decisions about the future.”

For businessmen like the Italian restaurant owner, the uncertainty is the crusher. He doesn’t know yet whether he’ll be in the over-50 or under-50 employees category, so all he can do is hunker down and try to collect his data. He doesn’t know if he’ll be able to afford the health insurance plan he currently has for his employees once more of his workers qualify (until now, he has counted 34 hours per week, not 30, as full time). Does he need to change plans? If he’s not at the 50-employee mark, will he be able to afford covering any of his employees or have to drop health coverage altogether?

All of this remains unclear. There is something, however, that he knows for sure. In the 1990s, he grew the restaurant, tacking on a sprawling complex to the little bar and kitchen where his Italian immigrant parents served spaghetti and meatballs starting in the early 1950s. He doubled its size.

He also laid the groundwork for further expansion. “When we re-engineered this building, we left in place the structure to support a 120-seat catering hall on the second level,” he says. Now, it’s out of the question.

“I’d always thought I’d do what my dad did,” he says. “He was working in here till he was 73 and had a massive heart attack and died.”

“I always thought I would be happy to be that old and work in here until my last day,” he says. “Now, I’m seriously contemplating retiring for the first time in my life.”